Former Senate Economist: Central Bank Digital Currency Requires Authoritarian Government Like China’s

The​ Potential Dangers ⁤of ‌Central Bank Digital Currency

The widespread implementation of central bank digital currency (CBDC) would require a degree of government control similar to what the Chinese communist regime ​has over its citizens, said Thomas Hogan, a senior fellow at pro-free market think tank American Institute for Economic ‍Research‍ and former ⁢chief economist for the Senate Banking Committee.

“If a government is going to introduce this new electronic ‌currency system, there are only two ⁢ways that it would ​be widely used,” Mr. ‍Hogan said in an interview on EpochTV’s “Crossroads.”

“One is, if it’s ⁢a really good system and people want to use it. We haven’t seen that anywhere,” the economist told host Joshua Philipp. “The other way is that, if they [the governments] are so forceful and so powerful, like in the case‌ of China, they can⁢ essentially force ⁣the citizens to use it.”

According to a recent report by Washington-based think tank Atlantic Council, ​a total of 130 countries representing 98 percent of ⁢the⁤ global economy are taking⁢ steps to convert their central bank money‌ into digital ⁢form. That’s a dramatic increase from two years ago, when there were just 35 countries exploring a CBDC.

Some 11 of⁢ those 130 countries have already launched their CBDCs. All of them, except Nigeria, are Caribbean island nations.

All G-20 countries, with the exception of Argentina, are now in the advanced stage‍ of CBDC development. In China, a pilot digital renminbi⁣ program is being⁣ tested in more than 200 scenarios, from public transit to government ⁤stimulus payments to e-commerce.

Russia, amid what it calls a special military operation against⁤ Ukraine, announced that it would ⁣launch a CBDC pilot in April. After a series of⁤ delays due⁣ to legislative changes, the⁣ Bank of ‌Russia said it will finally begin real-world​ tests of the digital ruble with 13 banks‍ and ‌limited clients on‍ Aug. 15, with⁤ a goal to open it to ‍all citizens and businesses in 2025.

“Once they are offering ⁣the public these digital currencies, the central bank has some information about​ what the public is doing, ​what they’re ‍spending their money ⁢on, and has some control ‌about what people are and aren’t able to spend their money⁢ on,” Mr. Hogan said.

“That seems pretty dangerous. We’re not ​sure whether we want that⁣ power in the government’s hands.”

An Outlook of the Fed’s Digital Dollar

In the United ⁤States, the Federal ​Reserve’s work on a retail CBDC has largely stalled, although it is still moving forward with a wholesale ⁢CBDC, which can only be used by financial institutions for⁢ bank-to-bank transfers.

“Traditional transfers between banks take a long time. You have to wait several‌ days,”Mr. Hogan explained. With a‍ CBDC, “this is now a system where you can transfer money 24 hours⁣ a day, seven days a week, and you don’t have to wait a long time.”

“Of course, part of the reason that they have‍ to wait is legal ⁤issues that have nothing to do with actual technology itself,” he continued. “So even ⁣though this technology is a little bit more efficient, it’s not clear that there’s a big benefit there.”

When asked why the Fed is interested in⁢ replacing physical paper banknotes with digital dollars, Mr. Hogan said this would, first of all, give the central bank much⁣ greater flexibility in controlling the amount of money in circulation.

“Typically, the Federal Reserve⁣ manages the⁤ money supply‌ by ⁤buying and selling bonds and ‌raising and ⁤lowering interest rates,” Mr. Hogan ‌explained. “Rather than buying and selling bonds and putting money⁢ into financial markets, they could just directly inject⁤ that money into people’s bank accounts with the central bank‍ digital currency.”

“However, that would also mean they would have the ability to take money​ out of people’s bank accounts,” he added. “It ‍also, as we said, gives them more control to⁤ monitor​ what‌ people⁤ are doing with their money.”

As this point, according to the former senate economist, a digital U.S. dollar ‌remains more of⁣ an idea, since the federal government doesn’t have as much top-down control as China does.

“[China’s CBDC] ‍is the only one that’s really been widely used, and ‍that’s just⁣ because China has so much power over citizens,” he told Mr. Philipp. “It’s⁢ already controlling all of their financial companies and their internet companies.”

Fed Chair’s CBDC Testimony

In March, during a hearing before ​the House Committee on Financial Services, Federal Reserve chair Jerome⁢ Powell said it would “absolutely be the case” that ⁢a retail CBDC needs congressional approval before it could be offered to⁢ Americans. He also said the central bank wasn’t “at the stage of making any real decisions” about things like ⁣the potential‍ architecture of a digital dollar.

While that may sound assuring, it doesn’t​ mean people’s concerns over ⁤the government-driven push for ⁣a⁣ cashless society aren’t valid, Mr. Hogan said.

“This push has been going on for ‌decades ⁣already to⁣ get people away from cash⁢ and to take away their ability to use cash, so that the ⁤government can have more control over their transactions,” the economist said, noting that⁢ idea of ‌ditching cash for digital money is based on two false assumptions.

“One is that people who only use cash are criminals, which is definitely not true,” he explained. “It also assumes that the government is trustworthy in managing ​all those payments and⁢ managing ⁣your transactions.”